More Opportunity Zone Cronyism
The New York Times published an investigation over the weekend entitled “Symbol of ’80s Greed Stands to Profit From Trump Tax Break for Poor Areas.” The break is the capital gains tax cut for investing in Opportunity Zones, which was enacted in the 2017 Tax Cuts and Jobs Act.
The liberal Times likely relished tying Trump’s policies to Michael Milken. But O Zones represent poor policy from a libertarian perspective as well. The 8,700 zones divide the nation between winner and loser communities. They replace equal justice under the law with differential treatment based on political pull. The main winners are likely landowners within the zones, not poor households.
Republicans are often their own worst enemies. They say they favor a flatter, simpler tax code, but then they add loopholes such as O Zones that generate distortions and endless lobbying.
O Zones are a bad idea and should be repealed, as discussed here, here, here, here, here, here, here, here, and here.
Here are some excerpts from the NYT piece by Eric Lipton and Jesse Drucker:
In the 1980s, Michael Milken embodied Wall Street greed. A swashbuckling financier, he was charged with playing a central role in a vast insider-trading scheme and was sent to prison for violating federal securities and tax laws.
… These days, the Milken Institute is a leading proponent of a new federal tax break that was intended to coax wealthy investors to plow money into distressed communities known as “opportunity zones.” The institute’s leaders have helped push senior officials in the Trump administration to make the tax incentive more generous, even though it is under fire for being slanted toward the wealthy.
Mr. Milken, it turns out, is in a position to personally gain from some of the changes that his institute has urged the Trump administration to enact. In one case, the Treasury secretary, Steven Mnuchin, directly intervened in a way that benefited Mr. Milken, his longtime friend.
… While the Milken Institute’s advocacy of opportunity zones is public, Mr. Milken’s financial stake in the outcome is not.
The former “junk bond king” has investments in at least two major real estate projects inside federally designated opportunity zones in Nevada, near Mr. Milken’s Lake Tahoe vacation home, according to public records reviewed by The New York Times.
One of those developments, inside an industrial park, is a nearly 700-acre site in which Mr. Milken is a major investor. Last year, after pressure from Mr. Milken’s business partner and other landowners, the Treasury Department ignored its own guidelines on how to select opportunity zones and made the area eligible for the tax break, according to people involved in the discussions and records reviewed by The Times.
The unusual decision was made at the personal instruction of Mr. Mnuchin, according to internal Treasury Department emails. It came shortly after he had spent time with Mr. Milken at an event his institute hosted.
“People were troubled,” said Annie Donovan, who previously ran the Treasury office in charge of designating areas as opportunity zones. She and two of her former colleagues said they were upset that the Treasury secretary was intervening to bend rules, though they said they didn’t realize at the time that Mr. Mnuchin’s friend stood to profit. The agency’s employees, Ms. Donovan said, “were put in a position where they had to compromise the integrity of the process.”
… The Treasury permitted opportunity zones to encompass not only poor communities but some adjacent affluent neighborhoods. Much of the money so far has flowed to those wealthier areas, including many projects that were planned long before the new law was enacted.
Investors and others — including Mr. Milken’s institute — have been pushing the Treasury Department to write the rules governing opportunity zones in ways that would make it easier to qualify for the tax break. That campaign worked, and Mr. Milken is among the potential beneficiaries.
… High above Reno, on a vast hillside where wild horses roam, is the site of one of Nevada’s biggest opportunity zones.
The center of this area is known as Comstock Meadows, a reference to the 1859 discovery of the so-called Comstock Lode, one of the largest deposits of silver ever found in the United States.
… Today it is home to the Tahoe-Reno Industrial Center. Lured by cheap land, Google is building a huge new complex inside the industrial park. Tesla and Switch, the data-center company, recently opened their own operations. And down the street, Mr. Milken co-owns a company that holds nearly 700 acres of empty land.
He and his partner — Chip Bowlby, president of a development company called Reno Land — planned to use that space to open a so-called tech incubator, where smaller companies could set up operations, among other possible uses.
… Nevada officials wanted to nominate the census tract that included the industrial park as an opportunity zone. But in early 2018, Treasury officials had ruled that the area was ineligible because its residents were too affluent.
Major landowners at the site, including Mr. Bowlby, urged state and local officials to try to get the Treasury to reverse that ruling, said Kris Thompson, the project manager at the industrial center.
Storey County, where the industrial park is situated, deployed Jon Porter, a former House Republican from Nevada who is now a lobbyist, to push the matter. Dean Heller, at the time a Republican senator, and Brian Sandoval, then the governor, also were enlisted and had phone calls with Mr. Mnuchin around that time, according to Treasury records. Mr. Heller, Mr. Porter and Mr. Sandoval did not respond to requests for comment.
Just as that lobbying intensified in the spring of 2018, Mr. Milken opened his institute’s annual conference in Beverly Hills.
Mr. Mnuchin was a featured guest. “It’s great to be here with you and all my L.A. friends,” the Treasury secretary said in an onstage interview on April 30.
That afternoon, the institute organized an invitation-only meeting with Mr. Mnuchin and his staff to discuss opportunity zones. Other listed attendees included Sean Parker, the former Facebook president and an early advocate of opportunity zones, and Raymond J. McGuire, a top Citigroup executive. Mr. Betru was the moderator.
Within days, the Treasury Department had shifted its position and was now willing to let the state nominate the area around the Nevada industrial park as an opportunity zone.
Mr. Mnuchin told Mr. Kowalski to inform other Treasury officials that they should accept Storey County’s nomination, according to email records reviewed by The Times.
Mr. Mnuchin spoke on the phone on May 8 with Mr. Sandoval. Forty-five minutes later, Mr. Sandoval formally nominated the site to be part of an opportunity zone, email records, including documents from Nevada, show. And the decision was soon officially blessed by the Treasury Department